1964 (11) TMI 94 - HC - VAT and Sales Tax

Summary

Issues:

1. Interpretation of section 26(2) of the Bombay Sales Tax Act, 1953 regarding the taxation of stock of goods transferred during the dissolution of a firm.
2. Whether the State can rely on section 26(3)(i) for taxing stock of goods transferred to a new entity.
3. Applicability of sections 14 and 15 of the Bombay Sales Tax Act, 1953 to an assessment under section 26(3).

Issue 1: Interpretation of section 26(2) of the Bombay Sales Tax Act, 1953

The case involved a dissolved firm where the business at two locations was divided among partners. The key contention was whether the stock of goods transferred during this dissolution should be taxed under section 26(2). Section 26(2) requires three conditions to be met for taxation: transfer of ownership of a part of the business, retention of the other part by the transferor, and absence of a registration certificate by the transferee within the prescribed period. The Tribunal found that the second condition was not fulfilled as both parts of the business were transferred simultaneously to different sets of partners. As no part of the business remained with the transferor, the State could not tax the stock of goods under section 26(2.

Issue 2: State's reliance on section 26(3)(i) for taxation

The State attempted to rely on section 26(3)(i) to tax the stock of goods transferred. However, it was determined that this section was ultra vires the State Legislature, as previously held in a separate judgment. Therefore, the State was not entitled to tax the stock of goods under section 26(3)(i), and this issue was resolved accordingly.

Issue 3: Applicability of sections 14 and 15 to an assessment under section 26(3)

The judgment clarified that the State could not apply sections 14 and 15 of the Bombay Sales Tax Act, 1953 to an assessment under section 26(3). This was due to the aforementioned section being deemed ultra vires, rendering the application of sections 14 and 15 irrelevant in this context.

In conclusion, the High Court of Gujarat clarified the interpretation of section 26(2) regarding the taxation of stock of goods transferred during the dissolution of a firm. It was established that for taxation under this section, all three conditions must be met, including the retention of part of the business by the transferor. Additionally, the State's attempt to rely on section 26(3)(i) was dismissed due to its legislative invalidity, and the application of sections 14 and 15 to section 26(3) assessments was deemed inapplicable. The judgment favored the respondent firm, and the State was directed to pay the costs of the reference.